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Good Times Ahead for Telecom - Analyst Blog

The telecommunications services industry is riding on the
high-end smartphone and tablet vogue. Unprecedented growth in
high-speed mobile Internet traffic, in particular toward wireless
data and video, has transformed the industry into the most
evolving, inventive and keenly contested space. Any new network
standard aims at faster data connectivity, quick video streaming
with high resolution and rich multimedia applications.

A recent report by Infonetics Research estimates telecom
operators globally to generate approximately $2 trillion in
revenues in 2013. This is slightly better than the $1.9 trillion
revenues in 2012. More importantly, the report also stated that
these telecom carriers are spending more on capital expenditures
in order to update their networks with the latest technologies.
In 2013, carriers' expenditures have risen 6% year over year and
are expected to rise at a CAGR of 2% from 2012 to 2017, reaching
a significant $355 billion by that time.

While the U.S. is expected to maintain its speed of telecom
growth in the near term, most of the impetus will come from the
emerging markets such as China, India, Brazil and Russia. Carrier
expenditures have increased in Japan and even major telecom
operators of the Western Europe, which is the economically most
vulnerable region, have also raised their budget to some
extent.

Infonetics further stated that the market size for Carrier
routers and Carrier Ethernet switches grew 7% year over year to
$3.6 billion in the third quarter of 2013. This market size is
expected to reach $20 billion by 2017.

The GSM Association's research wing, GMSA Intelligence,
recently revealed that there will be more than 1 billion LTE
connections globally by 2017. Currently, there are approximately
176 million LTE connections worldwide. By 2017, there will be
around 465 LTE networks across 128 countries.

GSMA Intelligence further reported that LTE users consume an
average of 1.5GB data per month, twofold of what is consumed by
non-LTE users. In the developing countries, LTE users can
generate 20 times higher average revenue per user (ARPU) to
carriers than non-LTE users, whereas in the developed countries,
ARPU can be 10-40% higher for LTE users instead of non-LTE
users.

We remain optimistic on U.S. telecom giant
Verizon Communications Inc.
(
VZ
) and
AT&T Inc.
(
T
) as well as on cable MSO
Comcast Corp.
(
CMCSA
). Currently, all these stocks carry a Zacks Rank #3 (Hold).
However, AT&T and Verizon are significantly expanding their
subscriber base for both wireless network and fiber-based video
network. Similarly, Comcast is also significantly expanding its
high-speed broadband subscriber base.

The mobile chipset maker
Qualcomm Inc.
(
QCOM
) currently has a Zacks Rank #2 (Buy) and the stock is likely to
continue is strong performance. Additionally, all these four
companies are regular dividend payers.

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